What Is Speculative Inventory?

simonkr/iStock/Getty Images

Speculative inventory, also referred to as anticipatory inventory, is the purchase of inventory for the purpose of holding it for future need. Companies typically buy speculative inventory because the are protecting against, or preparing for, some type of future event that makes buying inventory early a necessity.

Price Increases

One of the strategic reasons a company purchases speculative inventory is based on the anticipation of higher prices. When a company has reason to believe that economic factors will drive supplies of materials or goods higher, it may purchase more inventory than is immediately needed or buy in bulk to take advantage of current market prices. This is especially likely if the inventory is nonperishable, has no expiration and is less likely to lose value over time.

Seasonality

Companies also buy speculative inventory to protect against uncertain demand due to seasonality. For instance, a company that operates in a region with four distinct seasons may buy extra snow-based products heading into the fall and winter if it believes a harsh winter is in store. This may lead to extra inventory on hand if demand does not measure up, but it does protect against a shortage if demand is high and the company has not ordered enough inventory to cover it.

Availability

Another potential risk to retailers that may cause them to build up speculative inventory is a lack of available labor and materials. If union workers in a manufacturing industry are contemplating a strike, for instance, buyers may stock up on inventory while it is available to protect against a future loss of availability. Similarly, manufacturers may have concern about loss of materials affecting production, for example, if weather conditions wipe out raw materials or they are in short supply.

Manufacturing

Manufacturers also have to adapt when buyers purchase speculative inventory. While buyers are concerned with materials and goods, manufacturers are concerned with keeping production at optimum and efficient levels. If manufacturers anticipate higher demand from buyers, they can maintain enough staff and equipment to keep up. When buyers spring larger than expected orders on manufacturers, these companies may have to hire extra workers, pay overtime and purchase additional resources in a hurry.

References

About the Author

Neil Kokemuller has been an active business, finance and education writer and content media website developer since 2007. He has been a college marketing professor since 2004. Kokemuller has additional professional experience in marketing, retail and small business. He holds a Master of Business Administration from Iowa State University.

Photo Credits

  • simonkr/iStock/Getty Images